Manchester City supporters crowding into Borussia Dortmund's away end for their final group stage match of the Champions League on Tuesdaywill not face the renowned south stand in its full "Yellow Wall" grandeur. Uefa's requirements that all stadiums in its competitions must be all-seater mean Dortmund's Signal Iduna Park, still called the Westfalenstadion by Dortmund devotees, is reduced to a 65,718 capacity from the 80,100 for all German league matches. At Bundesliga games, the south stand is a mesmerisingly high, wide, monumental standing area, peopled by 25,000 Dortmund supporters roaring, singing, and waving huge flags. It is one of European football's great spectacles, dressed in Borussia's yellow.

The fans tell you proudly what they pay for a season ticket: only €190, around €11 (£8.95) a match, to watch Jürgen Klopp's German champions, last season's double winners, who stand top of their Champions League group. During their most recent Bundesliga home game, a 1-1 draw with Fortuna Düsseldorf – whose fans also made a constant, rousing noise – Dortmund's fans observed an uncharacteristic silence for the first 12 minutes and 12 seconds. New proposals to improve security at Bundesliga grounds, aimed particularly at eliminating flares, which are already anyway illegal, are to be discussed by all the clubs on 12 December, hence the 12/12 protest. Supporters groups have interpreted the suggestions, which include searching supporters at "high-risk" games and bans for those who break the rules, as a means by stealth to sedate German football's raucous, standing fan culture, an intention the Bundesliga emphatically denies.

To the English observer the protest was remarkable in several ways: the fans' united opposition to the politicians' threats of all-seater stadiums, whose atmospheres have profoundly unimpressed the Dortmund fans at away matches in England; the committed degree of organisation by the fans, and, most startling, the fact that the club itself supplied staff to help the fans protest. The Fan-Projekt, a team of social workers funded by the Bundesliga, city council and government to help young fans channel their football fervour in constructive ways, delivered the ultras their banners, flags and leaflets in a van. Then Jens Volke, a Borussia supporter liaison officer, described by the club's chief executive, Hans-Joachim Watzke, as a former "chief of our ultra fans", led them into the stadium at 4pm, four hours before kick-off, to lay a leaflet on every Westfalenstadion seat. Its title: "What kind of football do you want?"

Nicolai Maurer, 26, a member of Dortmund's unity ultras group – 260 young men and women, mostly in their early 20s – explained: "If there are some problems at the stadium we do not believe the answer is repression. The politicians are threatening that Germany must have seats, and we are worried it will be like England, where the football atmosphere was famous but now it is so quiet. At Manchester City [where Dortmund excelled in a 1-1 draw last month] it was a little better, but at Arsenal last year, we could not believe you could watch football so quietly. We don't want that."

The league and the clubs insist they do not want all-seater stadiums, but defend the security proposals as a means of satisfying politicians concerned about flares and recent trouble at the Dortmund v Schalke derby. Still, they facilitated the fans' protest against their own proposals.

Volke, known and clearly respected by the lads in the south stand who give him a clasped handshake as he weaves through them, explained: "This is their opinion, so we believe we should support free speech. It is a policy of the club, we want young people to come here, to feel included, and we work with them, to help them use their energy in a positive way. They are not outsiders, they are part of the club."

In the south stand, from a spot near the middle and low down, when you look back and up, the multitude of faces and yellow seem to flow up a wave higher than you can take in. Mostly, all around, the fans are young, if not quite as young as might be expected for €11 a match. Volke said about 40% are under 25, most in their early 20s; because so many have season tickets, new teenage fans are struggling to attend and the club is developing some initiatives to bring them in.

As the match kicked off that vast wall of 25,000 up-for-it Borussia fans did indeed keep their sound to a low murmur, even as Klopp's fast young side, with its complement of home-developed young stars, zipped the ball around and immediately attacked. Eventually the clock on the video screen clicked on to 12 minutes, 12 seconds. A young guy next to me smiled and said: "OK, it was nice to meet you, goodbye!" then launched into 77 minutes and 48 seconds of constant roaring, bellowing and chanting. Huge yellow flags unfurled, and the ultras, on a platform facing the thronging terrace, urged and led the fans' singing with a megaphone, literally banging the drum.

Watzke, speaking before the game in one of the plush, strip-lit dining suites high in the all-seated east stand, had pointed over at the vast terrace. "This is our German football culture: to have standing, and cheap tickets, and the clubs controlled by their members," he said. "We want everybody to feel it is their club and that is really important. I was a supporter standing for 20 years, I know what it is to stand there, the feeling, the discussions you have there. In Germany we are a little bit romantic. Where there is a club, the German supporter wants to have the feeling it is his club." Then he took his first dig at ownership elsewhere: "Not the club of Qatar or Abu Dhabi."

A lifelong Dortmund supporter and a businessman with his own company, Watzke, the chief executive since Borussia's debt crisis in 2005, said ticket prices are kept low as a policy decision. "That is our way, to have cheap tickets. We have 28,000 places for standing in the stadium. If we make those areas into 15,000 seats, we have been advised we could make €5m more per season. But there was no question of doing it, because it is our culture. The young people start there, standing. They say of the club: 'It's mine.' And they will never let you down."

Among Germany's well-organised supporter groups is Kein Zwanni (Not Twenty), a campaign to keep tickets cheap. Its spokesman, Dortmund fan Marc Quambusch, said: "You have to keep tickets affordable so poorer and young people can have the experience of being football supporters. German football has a special relationship with supporters because we are the owners of the clubs; people do feel that very emotional sense of belonging and the clubs do listen to the fans. I feel we need to really value what we have."

Watzke is a confirmed adherent to the Bundesliga rule that its clubs, with the historic exceptions of Bayer Leverkusen, Wolfsburg and more recently Hoffenheim, must be controlled "50% plus one" by their members. The other 33 of the 36 clubs, including Bayern Munich, which is 82% owned by its member-supporters, cannot be bought by a single person from outside, like the Premier League clubs, but instead are democratically answerable to their members. The rule, introduced to preserve sporting integrity when the two divisions of the Bundesliga broke away from the German FA, the DFB, in 2001, is pertinent at Dortmund. In 2000, raising €143m with the issue of new shares, Dortmund floated as a football company on the stock market.

In England when the top clubs floated, beginning with Tottenham Hotspur in 1983, they were allowed to form holding companies to bypass long-standing FA rules designed to keep a club ethos and prevent investors making fortunes out of them. In Germany, the 50% plus one rule remained, so at Dortmund investors had to understand they could not buy a controlling vote. The president, Reinhard Rauball, considered by fans a solid defender of their club's core values, is elected by the members, along with four more candidates to sit on the overall supervisory board.

When Martin Kind, the major investor in Hannover, lobbied to have the 50% plus one rule changed so that he and other individuals could take control of clubs, Watzke said proudly: "I was the biggest opponent of changing the rule. Germans want to have that sense of belonging. Football is more than a business."

Working in partnership with Rauball, Watzke has steered Dortmund's recovery from near-insolvency to current flourishing Bundesliga champions and leaders of the Champions League group over City, Ajax and Real Madrid, whom Klopp's team triumphantly beat 2-1 at the Westfalenstadion on 24 October.

By 2005 the club had blown its stock market windfall and run up debts of €122m, principally, Watzke said, by wasting money on overpriced players from overseas. The stadium had been hocked to a fund of the Commerzbank to which Borussia had to pay rent of an astonishing €17m a year. Watzke and advisers were backed by the merchant bank Morgan Stanley, which loaned €150m for a settlement with creditors, on average 70% of their debts, and Borussia were able to buy their stadium back for €80m. Then they had another issue of shares, the member-supporters still retaining voting control; Morgan Stanley subscribed for 30%, English and American funds bought the other 70%, and the club raised €53m.

With the ground always full, 80,000 for German matches, just under 66,000 for European, the Bundesliga's improved TV deals, worth €440m this season, (the new deal is for €2.5bn over the next four years), €60m annually from sponsorships and success on the field, Borussia's turnover has increased to €215m. Last week they announced a profit after tax of €34m; the debts are down from the €143m Watzke inherited, to €11m.

Watzke emphasises that this coming together of passionate supporters paying cheaply en masse to support a club now flourishing at one of Europe's great stadiums centres around a pragmatic footballing philosophy and the course steered by Klopp. "We realised in 2007, when we had no money, that we needed a completely new way," he said. "We decided to buy only young players, who would give what the Dortmund people want: every effort."

Thomas Doll, the former German international, was replaced as coach by Klopp, who came from Mainz in the second division, and immediately bought into Dortmund's prudent reliance on youth. "We wanted a coach who could make players play to a plan, have a defensive structure, and give every effort, and when you looked at Mainz, you could see Jürgen Klopp was the right coach. We appointed him in 2008 and since then we have gone straight up."

Into this philosophy fits the core of German and homegrown players, paid a fraction of City's all-starred wage bill, whom the fans embrace as their own, with Kevin Grosskreutz and Mario Götze particular favourites. Watzke said they had confidence the team would gain experience in the Champions League this season – last year he spotted a player, whom he wouldn't name, taking a picture of Robin van Persie when they went out on to the Emirates Stadium pitch before the game. The absence of owners bankrolling spending, Watzke said, encourages a sensible football philosophy.

"There are many different ways to Rome," he reflected. "Chelsea have their way and they won the Champions League, but their question is: what happens after Abramovich? In Germany, we believe in the clubs as member clubs, and our fans must be our members, not our customers. Here, this is the only way."

To the Yellow Wall's approving roar, Jakub Blaszczykowski struck Dortmund into the lead against Düsseldorf with a floated right-foot volley just before half-time. But Klopp's side could not sharpen their endless possession into another finish, and with 12 minutes left Stefan Reisinger sparked surprised delight in the away fans with a smart, equalising downward header.

Afterwards, Düsseldorf fans in red and white were drinking with Dortmund supporters in the Westfalenstadion Strobels bar; there was not a breath of trouble all night. In Germany they are tussling about flares, about managing the limits of a raucous and youthful fan culture they insist they want to nurture, not price out. On their monumental standing areas, with cheap tickets, and member-owned clubs whose executives hold forth about the game's soul, football in Germany speaks to us, of essentials we somehow managed to lose, of how football might be.